Angel Investing Made Easy, Shanti Mohan

© Copyright LetsVenture.com | All rights reserved
Shanti Mohan
Founder & CEO
shanti@letsventure.com
Twitter Handle
@letsventurein

Agenda  State of the Angel Investment in India
 Angel Investments 101
 What is Angel Investment? Why should you do it?
 How do you make a return?
 How do you evaluate a startup?
 Deal Dynamics
 Valuation
 Process
 Primer on Term Sheets / SHA
 How do you get started?
 Syndicates on LV
 Pitches with analysis

State of seed/Angel
Investments
 2012 Deals and Roughly between 120-150 deals
 Networks (IAN, Mumbai Angels, Hyderabad Angels,
Bangalore Angels) etc contributing to guess estimate of
30-35% of the deals
 Median investment value for Seed/Angel investment: 1.5
CR
 Roughly 50 deals between Dec-Mar 13
 Rise of the institutional first cheque (Blume, Kae,
firstcheque, Harvard, 500startups etc)
 Start of incubators

State of seed/Angel
Investments
 2013
• Slight slow down (Impact of Section 56 ?)
• New players (including incubators) starting to deploy
funds
• RISE of the incubation model (today approx 50+
incubators)
• Accelerators working on batches 2 & 3
• HOT sectors (not including consolidation): Healthcare,
Education
• LetsVenture Founded in Sept 2013

State of seed/Angel
Investments
 2014
• India story becomes strong
• 31 global funds enter the India market
• VC’s actively playing in early stage (IDG, Sequoia, Accel,
SAIF)
• LetsVenture completes 23 deal in end of first year, with
6.5m being committed online

SEED-STAGE FUNDING IN INDIA
FY10 – FY15
• Enter key takeaway of
this slide

What we learnt in the last
1.5 years (2014/15)
• New persona of angel investors have emerged
• Entrepreneur turned investors
• Second generation family business owners
• Global Indian
• Corporate MNC
• Online investing is on the rise (LV is India’s largest platform
for startup funding)
• Early Stage investing will include Tier 2 cities, angel groups,
micro funds and early stage VC’s

Do you want to be part of the
new investing wave?

Why Angel Invest?
 Support Entrepreneurship
 Leverage your knowledge and connections
 Develop an alternate asset class
 Make Money

Who is an Angel Investor?
 Strong Passion for entrepreneurship
 It is nearly a pseudo entrepreneurship
 Bring value to the startups
 Anyone with Surplus capital which can be invested

What returns can you expect?
 2/3 of startups fail world wide
 75% of the angel investments do not make returns
 Very high risk / High Return Game
India, still a young eco-system. Not many data points…
 Some reports show a return of 3x – 22x

How do you exit?
 Since you own equity in the venture, only when you sell
equity to someone else, you make money
 You do not make money on dividends / profit share

How do you exit?
 Subsequent Rounds of Funding
 M&A
 Promoter Buyback
 IPO

Typical Curve
0 2 4 6 8 10
Valuation
Year
Seed
Round
Angel
Round
Series
A
Series B
Series
C
Bridge
Round*

Typical Curve
0 2 4 6 8 10
Valuation
Year
Seed
Round
Angel
Round
Series
A
Series B
Series
C
Bridge
Round*
Return*

When ?
 Idea in a slide
 Prototype Ready
 Customer
Traction
 Paying Customers
 Product-Market
Fit
 Multiple customer
segment
 Business Model Fit

Fund Raise Stages

Startup Life Cycle
Ideation
POC / Beta Launched
(MVP Stage)
Early Revenues / Early Traction –
Steady Revenues
(Product Market Fit)
What:
- Validate a real customer need
- Identify a real pain point to be
solved
- Articulate the value proposition
How:
- Talk to Potential customers
- Ask for Feedback
- Network, network and network
- Eventually follow your vision /
gut
What:
- Fast Market testing of a
product or feature to get
qualitative or quantitate
feedback
- Find your early adopters /
customers
How:
- Be Lean
- Focus on providing value to
your customer
- Use validated Learnings /
Pivots and iterations to move
towards PM fit
- Borrow or Steal
What:
- Product/market fit means
being in a good market with a
product that can satisfy that
market.
How:
- Customer are
buying/subscribing
- There is referral traffic
Finding Problem / Solution Fit Finding Product / Market Fit

Milestones & Raise
Milestones/Stage Age Revenue
Raise
Amount
From Whom
1 Venture Launched 0 – 0.5 0 5 – 25 L Self, Friends, Family
2 Beta Product Launched
B2C : Product used by real customers,
customers
B2B : Good Customer Pipeline, 1-2
trial
0.5 – 1 yr Small 25L-75L Self, Friends, Family,
Accelerators
3 Stable version
Regular Customer growth
1 – 1.5 10 – 15 L per
year
50 L – 1.5 Cr Self, Accelerators, Seed
Individual Angels
4 Product- Market fit found
Strong & Consistent Customer Growth
Clear Product & Revenue for next 2-3
1 – 2 yrs 20 – 50 L per
year
1CR – 4 Cr Individual Angels, Seed
Venture firms
5 Business Model Fit found
Clear growth Path for next 3-5 yrs
Consistent growth in paying customers
Potentially breakeven
1.5 – 3 2Cr – 5Cr per
year
3 Cr – 20 Cr Venture Funds
Note: The values in the above table are indicative only

Fund Raise Stages
Ideation
POC / Beta
Revenues /
Scale / Growth
Finding Problem / Solution Fit
Finding Product
(Service) / Market Fit
Finding Business
Model Fit
Bootstrapped/ Friend
and Family
Angel, Seed Funds ->
VC Rounds (A,B,..)
Revenue /
Traction
Time

Typical Raise
0 1 2 3 4 5 6 7 8 9
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market
Fit
Business Model
Fit
Bridge
Round*
3CR – 20CR
5-25L
25-75L
50L-1.5CR
1CR – 4CR
50L-1.5CR

Evaluating Startups

1. Passion, Purpose and Integrity
2. People don’t buy what you do but Why you do it!
3. Chemistry (with Investors and among the founders)
4. Ability to execute
5. Coachability
6. Complementary skills
7. Skin in the game
8. Think BIG!
Team

1. What problem are you trying to solve?
2. Is the product / idea disruptive or innovative?
3. Is there differentiation that is unique and difficult to replicate?
4. Product Traction
5. Is the market large enough and growing?
6. Is the business scalable?
Product and Market

1. Does it match my investment thesis? Can I add value?
2. Who else is investing?
3. What are my exit options?
Lead or Follow?

- Startups with well rounded team to execute innovative ideas, gain quick customer traction, build defensible market
position, and ability to scale.
- Product companies with differentiation and ability to go global
- World class technology centric internet products
- Early Stage companies with proven traction and new business models
Investment Mantra: Heard from Angel Investors!

As an Angel Investor – what
do you really care for?

Exit!

What is needed for an exit?

Scale!

Key is to develop one or two
specific points why will this
startup succeed
(Investment Thesis)

When not to Invest
 Exit Discomfort
 Founder Discomfort
 Business Discomfort
 Structure Discomfort

Valuation
Your business is worth what somebody is willing to pay for it..
Valuation at Early
Stage more of an
Art than Science

 Pre-Money = the value of your company now 
 Post-Money = the value of your company after the investor put the money in
Definitions
1Mn 2Mn 3Mn
=+
Investment
Pre-Money
Post-Money

Valuing an Early Stage Startup
1. Supply and Demand
2. Your Industry / Sector
3. Other Factors specific to Your Business!
4. Finally, Understand ‘Equity Planning’
4FACTORS

 Supply and Demand
 Patented technology
 Exclusive market partners
 Improved Traction
 How many more Angels / VC’s willing to invest?
 Before you start Fund raise, make sure your business is perceived as ‘new’, ‘unique’, ‘exciting’
 Are you a ‘Me-to’, ‘commodity business’ ?
Supply and Demand

 Each Industry / Sector has unique Valuation Dynamics
 Study valuations of similar startups in your space
 Study exits that happened in this space (acquihires, M&A)
 Study EBITDA (earnings before interest, tax, depreciation, and amortization)
 Understand growth metrics in your industry
 Understand growth metrics
Industry / Sector Dynamics

 Stage of the startup
 Will you survive the next 5 years?
 Cost to grow the business (Customer Acquisition cost, Technology costs)
 Scalability of the business (global versus local play)
 Founding Team Profile
 Advisory Board / Mentors Involved
Other factors Specific to Your Business!

 Try and get term sheets from multiple investors
 How many investors are willing to invest?
 How desperate is the Entrepreneur?
 Think a valuation that gives your Investors 10x!
 Founder Vesting
 Understand the details of a Term Sheet (some parameters could impact the value of your startup!)
 Liquidation Preference (could tilt outcomes on exit)
 Dilution (and anti dilution)
 Option Pool (on pre-money or post money?)
Finally …

 Letter of Intent which investors sign before
Share Holder agreeement
 LetsVenture has a standard term sheet
 After term sheet signed, Share Holder
Agreement (SHA) is the legal document
signed
 Shared issued to you, post money in bank
and SHA signing
What is a termsheet?

1. Liquidation Preference (could tilt outcomes on exit)
Participating or Non Participating:
 Non Participating (as per LV) – Investor gets to take
participate pro-rata.
 Participating: Takes his money out and then
2. Anti dilution:
Taken money at x valuation. If there is a down round,
given to investors (full rachet) – broad based weighted
compensation.
3. Option Pool (on pre-money or post money?)
4. Board Composition
Look for 1 director,
1 observer (not recognized by Indian law) but a backup if
not be available
Understand the
details of a Term
Sheet
(some parameters could
impact the value of your
startup!)

The Funding Process
Listen
to
Pitches
Verbal
Commitme
nt to Invest
Term
Sheet
SHA Closure
Legal DD
Fix
Issues
Financial
DD
Drop
Issues
too
serious?
YN
All Ok?
Y
N

Others
 Legal & Accounting Fees
 Mostly all investors put the burden of the legal fees on the
entrepreneur
 No Shop
 This prevents entrepreneurs from shopping around with
other investors while the dialogue is on. Time period can
range from a few weeks to a few months.
 Due Diligence

How do you start?

Getting Started
 Set aside a “forgettable” corpus
 Make a portfolio of ~10 investments over 2-3 years and possibly
~20+ over 4-5 years
 Lean on experienced angels to get started with
 Invest in your area of expertise
 Help the startup without being over bearing
 Meet the founders, spend time with them

Gradually work towards
having your own Investment
Thesis

Investment Thesis
 Your theory of investment
 Examples
 Product Companies with differentiation and potential to go global
 Both niche & mass products / services startups with potential for emerging and
developed markets
 Invest in ventures which work towards bringing a change in the social sector

Lead Investor
 Typically an investor leads the team in a syndicate. A lead investor has the following
major tasks
 Setting up the terms of the deal
 Help Build a syndicate
 Possibly take a board seat and help run the company
 Facilitate next round of funding

Post Deal Management
 Good to build a rhythm of a monthly review / quarterly report
 Provide them help without being over bearing
 Exercise patience when startup founders are not taking your suggestions
 Open Doors

Quick Tips
 Get started by participating in syndicates
 Network with experienced investors
 Invest in the area of your expertise
 Develop relationships with the entrepreneurs
 Allocate corpus
 When in doubt, do not invest!
 In the end, go with your gut!

Thank You!
www.LetsVenture.com
@letsventurei
n
shanti@letsventure.com
Twitter Handle

Angel Investing Made Easy, Shanti Mohan

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